PLANSPONSOR - August/September 2019 - 18

Upfront
Hardship Withdrawal Rules Get Updated
As the IRS explains, the act made
several updates to the requirements for
making and monitoring hardship distributions
from tax-qualified plans. In
particular, a distribution from a 401(k) or
similar qualified plan now must be treated
as made because of hardship even if the
employee did not first exhaust any available
plan loan.
In addition, the law directed the
IRS and Treasury Department to eliminate
the safe harbor requirement to
suspend participant contributions for six
months. Among still other changes, the
act ordered employers and the IRS to let
participants more easily certify that they
are experiencing a financial hardship.
As noted in the Snapshot, in
response to the Bipartisan Budget Act,
the IRS is proposing a regulation that
will replace the previous requirement
of a detailed and document-supported
representation of hardship. Instead it
will require " a general written statement
that the employee has insufficient cash
or other liquid assets to satisfy the need, "
effective for distributions made on or
after January 1, 2020.
The Snapshot points out that
AS EXPLAINED in a newly published
IRS Snapshot, a 401(k) plan may permit
pre-retirement distributions to be made
to participants because they experience a
financial hardship. A hardship is defined
as an " immediate and heavy financial
need, " and the participant must declare the
distribution is needed to satisfy one.
Generally, employees' contributions
rather than employer matching dollars
have been drawn upon to meet hardship
withdrawal requests. But if the sponsor
permits, certain employer matching
contributions and employer discretionary
contributions may also be distributed on
account of a hardship, though the standards
for distributions may be different.
For plan years beginning prior to this
year, qualified matching contributions,
qualified nonelective matching contributions
and income earned on elective deferrals
could not be distributed on account of a
hardship. These restrictions were lifted for
plans starting this year, and more changes
are on the horizon due to the requirements
of the Bipartisan Budget Act of 2018.
18 PLANSPONSOR.com August - September 2019
Art by Suharu Ogawa
" whether an employee has an immediate
and heavy financial need depends on all
relevant facts and circumstances " and that,
broadly speaking, when the proposed rule
becomes final, an employer may confidently
rely on the employee's representations
unless it has actual knowledge that
those are false.
While the rules are becoming more
lenient, there are still restrictions pursuant
to the safe harbor provisions that most
sponsors seek to comply with. The IRS
Snapshot notes that plans may continue
to use policies and procedures in place for
documenting participants' requests and
receipts of these distributions.
-John Manganaro
http://www.plansponsordigital.com/plansponsor/august-september_2019/TrackLink.action?pageName=18&exitLink=http%3A%2F%2FPLANSPONSOR.com
PLANSPONSOR - August/September 2019

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